Reddit stock falls as CEO questions value of Google AI Overviews

Reddit stock fell 11% in extended trading after the company reported strong second-quarter results, as investors focused on uncertainty around search referrals. The Reddit stock falls AI Overviews debate centers on whether Google’s changing search product can continue to send valuable visitors to sites that have long relied on its referrals, according to CNBC.

Chief Executive Steve Huffman said on Reddit’s July 30 earnings call that search referrals were uneven during the quarter and became more volatile later on. He said the company had limited visibility into referral traffic, even as it works to increase repeat use of its app and website, according to the company’s call transcript.

Reddit reported $805 million in second-quarter revenue, up 61% from a year earlier. Net income was $253 million, or $1.25 a diluted share, while adjusted EBITDA reached $343 million, a 43% margin, according to the transcript.

Why did Reddit stock fall after strong earnings?

The immediate share move came despite results that exceeded expectations and a forecast for third-quarter revenue of $860 million to $870 million. CNBC and other financial reports tied investor concern to the reliability of search-driven traffic and the company’s future user growth, rather than to a single confirmed cause for the decline.

Huffman said traditional search results, often called “10 blue links,” had delivered substantial value across the web. In his view, Google’s AI Overviews have not produced a comparable positive effect for businesses, publishers and retailers, CNBC reported.

Google’s AI Overviews provide information on the search page, and CNBC reported that the feature can push standard links lower in results. Huffman’s remarks did not establish a measured, AI Overview-specific reduction in Reddit traffic; he described search as volatile and said the company was seeking a better outcome for the wider web ecosystem.

How is Reddit responding to volatile search traffic?

Huffman said Reddit is concentrating on product changes and retention to turn web visitors into direct traffic, which he described as more valuable. The company’s stated aim is to build a daily destination rather than depend on “drive-by” visitors from search, according to the earnings-call transcript.

For context on why a stock can move sharply as investors reassess future risks after an earnings report, see how the stock market works. Market prices reflect orders from buyers and sellers, and investors can weigh a company’s outlook differently from its reported quarter.

The issue also overlaps with Reddit’s data-licensing business. CNBC reported that Reddit has licensing partnerships with Google and OpenAI, while The Wall Street Journal had reported that Reddit was considering restricting Google’s access to its data. CNBC said Huffman told investors the company’s thinking had not changed; no change to the Google arrangement was confirmed.

This story draws on original reporting from Ars Technica.